Money-multiplication mayhem

As Nigeria’s economic crisis deepens, it appears that many citizens have resorted to increasingly desperate methods of making quick cash. The best-known of such schemes is the local affiliate of Mavrodi Mundial Moneybox (MMM) whose dubious reputation became even more pronounced in the wake of its December 13 announcement that it was freezing all scheduled payments until January next year.
Founded in Russia in 1989, MMM calls itself a social financial network offering huge returns on investment for those who put funds into it. Within Africa, it has spread to South Africa, Uganda, Zimbabwe and Kenya. Based on an elaborate system of “guiders,” trustees, trustors, special currencies and bonuses, powered by effusive testimonials and the ubiquity of social media, it has accumulated an estimated three million Nigerians on its network since it was launched in November 2015. Many of them have put in substantial sums.
Invested funds are called “mavros” which are supposedly given to other investors whose promised payments are due. Payouts comprise the original sum invested, in addition to a 30 per cent monthly profit. The longer an investor stays, the greater the profit. Those who bring in additional investors are entitled to referral bonuses and can create multi-level structures of their own within the scheme.
MMM’s popularity has attracted the attention of regulatory bodies, with the Central Bank of Nigeria (CBN), the Nigeria Deposit Insurance Corporation (NDIC) and the Securities and Exchange Commission (SEC) cautioning Nigerians against participation in the scheme. The Economic and Financial Crimes Commission (EFCC) and the House of Representatives have also issued warnings.
Their admonitions are well-intentioned and are based on rational economic behaviour. Regardless of the testimonies of MMM participants who claim to have benefitted from the scheme, there is still the unanswered question of how any institution can sustainably guarantee 30 per cent profits on a monthly basis merely by overseeing the transfer of funds from one participant to another, without legitimate investment or production of any kind.
Nigerian history is littered with the activities of a succession of so-called “wonder-banks” which promised up to 60 per cent monthly profits, only to collapse under the weight of their own financial contradictions. They include Umanah Bank, Pennywise and Wealth Solutions, Treasure Line, Turning Point and Let’s Partner With You Ltd. Like MMM, they all promised enormous profits which they were unable to sustain after initial successes.
MMM was declared bankrupt in Russia in 1997. It was banned in China in January. Freezes on transactions were imposed on the South African affiliate of the scheme in May this year, and it has allegedly crashed in Zimbabwe. MMM co-founder, Sergey Mavrodi, is said to be on the run following the collapse of one of his other businesses.
It has been argued that MMM’s suspension of payments in Nigeria was brought about by unfriendly media scrutiny, and does not amount to a crash, but these contentions cannot explain the scheme’s troubles in other parts of the world. Its inherent unsustainability, lack of safeguards, opaque administration and absence of regulatory oversight make MMM a financial disaster waiting to happen.
It is significant that the scheme’s many punters have no choice but to believe that its nameless administrators will keep their word and resume payments in January. Even if that were to happen, however, there is no guarantee that participants would not rush to withdraw their investments, thereby short-circuiting the payout process and destroying the entire arrangement.
The country’s financial authorities must do more to ensure that dubious schemes like MMM do not take root in the country. A comprehensive enlightenment campaign, alert regulatory authorities, wide-ranging surveillance and prompt prosecution will help to ensure that Nigerians do not lose their hard-earn money to such schemes in future.